Defence future uncertain despite spending increase

An incoming coalition government will find broadly acceptable foundations for national defence policy in the recent defence white paper and budget measures of the apparently doomed Labor federal government.

The Coalition might want to refine some financial and strategic aspects of defence policy – especially uncertain aspects of how planned new multibillion-dollar weapons procurements will be funded and how struggling local defence industries can best be aligned with defence plans.

But there is no obvious need for a new Coalition minister (presumably WA Liberal Senator David Johnston) to order another white paper less than six months after publication of the current white paper. Despite ambiguities and evasions identified by Johnston, Labor has provided reasonable, if at times imprecise, strategic and financial blueprints for national defence policy.

The new white paper has reaffirmed that the principal objective of defence is to deter and defeat armed attacks on Australia. It has redefined Australia’s area of primary strategic interest as the protection of sea lines of communication in the vast Indo-Pacific region. It has modified previous white paper language that has angered Beijing while insisting on the primacy of the US alliance. And it has announced key spending decisions on planned new submarines and fighter jets.

Moreover the budget has arrested, for the time being, last year’s sharp fall in defence spending by providing a small increase in funding ($200 million towards the ­$1.2 billion cost of 12 new Growler electronic warfare jet fighters). Over the forward estimates period to 2016-17, it has provided $113.1 billion for defence compared with $103.2 billion last year, and it has indicated that some ­$220 billion will be spent to 2022-23.

Growth from a ‘low base’

The Australian Strategic Policy Institute’s defence budget expert Mark Thomson concluded his wry analysis by observing that “defence spending is on the rise again. But the growth is occurring from a low base . . . As always seems to be the case, there is a gap between means and ends that needs to be closed”.

Thomson calculated the current funding commitment for defence is $30 billion short of the estimated cost of planned equipment purchases to 2022.

The budget has also pledged (as “a long-term objective”) to increase spending towards a target of 2 per cent of gross domestic product although it does not explain how that target can be reached. Thomson notes that in fact the defence share of GDP will remain below 1.7 per cent for the next decade but that what really matters is “whether the government has committed enough money to deliver the defence force we need”. Thomson concludes grimly that it has not.

Still, much defence policy enjoys bipartisan support, notably the increased emphasis on the Indian Ocean, the decision to rule out the cheaper off-the-shelf submarine purchase, and the aspiration to further increase the defence budget over time.

But much also remains unclear for an incoming government. The white paper reflects Labor’s hope that more money will be released from the defence budget for procurements as the costly military deployments to Afghanistan, East Timor and the Solomon Islands wind down over the next two years. The budget says the end of the deployments will “release and allow the remediation of capabilities that have been on high tempo operations for more than a decade”.

But it remains to be seen how far defence will be able to rebalance spending from personnel and operating costs to capital equipment. Thomson notes that the cost of the Afghanistan deployment since 2001 has been $8.3 billion and the cost of the Solomon Islands deployment since 2003 has been $353 million.

Defence industry struggling

Any incoming government will face challenges in dealing with uncertainties confronting Australian defence industries. Some major prime contractors (notably BAE Systems and Thales) are struggling to find sufficient work to support their large workforces. There have already been significant retrenchments and more could follow. And many of Australia’s 3000 small to medium defence firms who sub-contract to the primes, and who employ some 15000 people, face uncertain futures.

In a recent report for the Australian Industry Group Defence Council, emeritus professor Paul Dibb warned that “capacity in defence industry cannot be taken for granted . . . defence industry policy has lacked focused implementation”.

Dibb and other defence industry players are concerned that there should be no so-called “valley of death” – lack of work – particularly in the Australian naval shipbuilding industry between the completion of the three air warfare destroyers now under construction and the start of the construction of the 12 new submarines.

The white paper sought to address this concern by announcing plans to replace the supply ships HMAS ­Success and HMAS Sirius and to bring forward the replacement of the Armidale class patrol boats. But it is not clear whether or when the ships will be built in ­Australia and the budget forward estimates do not earmark funds for them. Compounding this problem is the glacial pace of approvals for new defence capabilities listed in the Defence Capability Plan.

The decision to exclude cheap imported off-the-shelf submarines as replacements for the current Collins class submarines will ensure the submarines will be built in Australia in what Defence Minister Stephen Smith has called a major nation-building project. The decision to develop a submarine propulsion energy support and integration facility in Adelaide will further underpin the project. The bad news is that little funding detail has been given for the new submarine program.

Options for the Coalition

There are, too, grave concerns over the future of jobs at the BEA shipyard in Williamstown, Victoria, despite Smith’s announcement that construction of four blocks of the third air warfare destroyer will be transferred to Williamstown from the Forgacs shipyard in Newcastle.

Johnson has acknowledged the Coalition accepts the strategic judgments of the white paper and the decision to rule out off-the-shelf submarines. He has pointed to the lack of financial specifics in the white paper and the budget. But his pledge to “redo” the white paper over the following 18 months is vague and ambiguous.

So what might he usefully do to assist defence industry? The Australian Industry Group Defence Council, which he might be inclined to treat sympathetically, has argued “there is no purpose in recommending yet another basic review of defence industry”. The problems are clear; the solutions are obvious. What is needed is clearer long-term planning and financing, and serious attention to the so-called defence priority industry capabilities and strategic industry capabilities already identified by Labor.

There are things an incoming Coalition government might do to maximise its ownership of the white paper. It might re-emphasise defence links with Indonesia; it might reconsider Labor’s decision not to acquire new long-range self-propelled artillery – a decision that has damaged Australian relations with South Korea. Given the financial realities facing defence, Johnson might seek advice on much money will be released for defence capital acquisitions as the costs of deployments declines.

Former coalition defence minister Robert Hill had a useful device for dealing with these sorts of issues. Reluctant to push for new white papers he ­produced instead what he called “defence updates” – slim annual documents that set out changes in strategic and financial policy made necessary by changing global ­circumstances. Johnson might consider this a ­sensible compromise if he becomes defence minister in September.